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A judgment of the French-speaking Brussels Enterprise Court restates the principles of limitation, which resonate particularly in operations on financial instruments.
The facts: a swap and a fall in EURIBOR, non-contractual liability?
The case pitted a family company in the timber sector against its bank. The company had credit lines at the variable EURIBOR rate. To protect itself against rising rates, it had concluded with its bank a Bermudan callable swap, securing a fixed rate of 4.35% on a notional amount of EUR 1,300,000 for five years. Because of the fall in EURIBOR, the company paid the bank about EUR 200,000, which it claimed back, invoking a breach of the bank’s pre-contractual duty to inform and arguing that the bank’s liability was engaged under Article 1134 of the Civil Code, since by not remedying that breach it had not performed the contract in good faith.
The starting point of limitation for the liability action
The court held that an action arising from a fault committed when concluding a contract falls not under contractual liability, even if the consequences persist during the contract, but under non-contractual liability. The limitation question must therefore be analysed under Article 2262bis, § 1, paragraph 2 of the Civil Code, requiring one to find when the claimant actually became aware of the loss claimed.
The company argued it only had certain and definitive knowledge of its loss on receiving the bank’s last fixing notice, when its loss became irreversible as it could no longer be offset by a rise in EURIBOR. The court held that, while the extent of the alleged loss was only finally determined at the end of the contract, the claimant could not have failed to realise, on receiving the bank’s 20 fixing notices, that it had invariably been a debtor. The worsening of its position over several quarters merely confirmed the potentiality of a loss. On that basis, the court set the start of the limitation period at the end of 2009.
Some principles on the start of limitation
It is not always easy to determine whether the action against the bank arises from a contractual or non-contractual fault, nor what the starting point of limitation is. An investor suffering portfolio losses may engage the banker’s liability for a breach of the pre-contractual or contractual duty to inform, or both. For contractual actions, limitation runs from the fact giving rise to the action (from the day the contractual obligation was to be performed). For non-contractual liability, Article 2262bis, § 1 provides a five-year period from the day after the injured person became aware of the loss or its worsening and of the identity of the person responsible. Case law holds that the starting point is the day the injured person actually became aware of the loss, not the day they should be presumed to have known, and that knowledge of a loss does not imply knowledge of its extent.
Limitation can be shortened by contract
Many credit institutions and financial firms include in their general terms a clause shortening the ordinary limitation period to less than five years. This shortening, and its running from the operation giving rise to the dispute (regardless of awareness and of the nature of the action), is in principle accepted by scholarship and case law.
This article is a translation. Only the French version is authoritative. It is provided for information purposes and does not constitute legal advice.
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